Inflation, AI concerns take their toll on Wall Street

Despite the Federal Reserve holding interest rates steady and a surprisingly strong GDP report, markets declined this week amid churn in Big Tech stocks.MANHATTAN (CN) — The artificial intelligence buildout kept investors on their toes this week, as tech stocks dragged major indexes lower amid renewed concerns about an AI bubble.The fall was driven primarily by less-than-stellar earnings by Amazon and other key technology firms late in the week. Some analysts worry that AI infrastructure spending has gone too far.“Mega-cap stocks have faced increased selling pressure over the past two weeks, as elevated AI-related spending and rising financing costs raise concerns over the path to profitability,” said Adam Turnquist, strategist at LPL Financial.The tech-heavy Nasdaq suffered one of its worst trading days in months Friday, losing 2.8% for the day and 518 points for the week. The Dow Jones Industrial Average and S&P 500 also closed lower Friday, falling 445 points and 43 points, respectively.Earlier in the week, investors received mixed economic data, including a surprising 3.4% increase in gross domestic product and a 0.5% increase in a key personal consumption expenditures inflation report.Analysts attributed both the growth and higher inflation to the recent explosion in artificial intelligence technology and infrastructure.“Without the AI boom, global growth would be sluggish,” Oxford Economics economist Adam Slater wrote in an investor note, adding that the AI buildout is driving higher electricity prices and potentially higher borrowing costs. “The U.S. economy has been more reliant on this tech boom for growth than it was in the dotcom tech boom.”Investors also received a temporary reprieve from the Federal Reserve, which voted to keep the federal funds rate steady. The announcement did not spark a Wall Street rally, however, as signs pointed to an increasingly hawkish central bank.Two of the 12 members of the Federal Open Market Committee favored a rate hike, while the wording of the latest policy statement hinted at a hike in December and possibly another in March.“Looking ahead, we think that the doves on the FOMC will be disappointed, as core inflation pressures remain too strong for comfort next year, fueled by an AI investment boom that we expect will sustain solid activity and keep the labor market tight,” Thomas Ryan, senior North America economist at Capital Economics, wrote in an investor’s note.Another positive development this week was the Conference Board’s 7.5-point increase in its monthly consumer confidence index. The index, which had been steadily declining since June, popped on gasoline prices easing a bit.“The recovery was in line with retail gasoline prices easing from September to October,” Fergus McCormick, senior economist at the board, said in a statement.However, McCormick noted that despite the jump in confidence, the index “remained on the long-term downward trend that’s persisted over the past year” as consumers said they plan to spend less over the next six months.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads